Mortgage Law Blog, LLC

Placing sixth in the Iowa caucases, Senator Christopher Dodd abandoned his bid for Democratic Presidential nominee.  Personally, this was somewhat of a surprise to me after what I thought was a reasonably strong showing in the November Democratic Debates.  The results in Iowa surprised many people, however, and the race has tightened signficantly. 

Senator Dodd, for now, can turn his full attention back to his regular duties as Chairman of the Senate Committee on Banking, Housing, and Urban Affairs.  That presents risk for the lending community. 

As you know, the U.S. House has already passed a bill aimed at curbing alleged abuses by lenders and brokers.  The bill, “The Mortgage Reform and Anti-Predatory Lending Act of 2007, H.R. 3915,” presents a number of serious problems for the mortgage banking industry.  For example, the Committee’s press release notes the House Bill imposes on loan originators a so-called Federal “Duty of Care” that requires the originators to present consumer with “appropriate” mortgage loans, ensure the consumer has a “reasonable ability to repay,” ensures the consumer receives a “net tangible benefit,” ensures that the loan lacks “predatory characteristics” and prohibits “steering.”  You know, the kinds of terms that can make a plaintiff’s bar salivate.

Not to be outdone, Senator Dodd on December 12, 2007 introduced his own bill, “The Homeownership Preservation and Protection Act of 2007.”  The Senate Bill contains similarly troublesome provisions.  For example, among other things, the bill:

• lowers the thresholds for a loan qualifying as a High Cost Loan;
• requires that each mortgage originator “act in good faith and with fair dealing in any transaction, practice, or course of business in connection with originating any home mortgage loan,
• requires that each mortgage originator “make reasonable efforts to secure a home mortgage loan that is appropriately advantageous to the borrower, considering all the circumstances, including the product type, rates, charges, and repayment terms.”
• requires that each mortgage broker “act in the best interest of the borrower and the “utmost good faith toward the borrower” and refrain from compromising the rights or interests of the borrower in favor of the rights or interests of another,
• prohibits a mortgage originator from steering, counseling or directing a consumer to a loan with rates, charges, principal amount, or prepayment terms that are “more costly than that for which the consumer qualifies,” and
• prohibits prepayment penalties on certain types of loans and certain yield spread premiums.

Senator Dodd’s press release regarding the proposed bill attaches a list of 11 individuals supporting the bill: 

• Martin Eakes, CEO, Center for Responsible Lending
• Hilary O. Shelton, Director, NAACP Washington Bureau
• David Sloan, Director of Government Relations and Advocacy, AARP
• Iowa Attorney General, Tom Miller
• Maude Hurd, ACORN National President
• Allen Fishbein, Director of Housing and Credit Policy, Consumer Federation of America
• Shanna Smith, President & CEO, National Fair Housing Alliance
• John Taylor, President & CEO, National Community Reinvestment Coalition
• Wade Henderson, President, Leadership Conference on Civil Rights
• Alys Cohen, Staff Attorney, National Consumer Law Center
• Don Borut, Executive Director, National League of Cities

Funny, I see no one listed from the housing finance industry:  no lenders, no brokers, no title companies, no realtors, no appraisers, no mortgage insurers.  Maybe they are still trying to figure out what these words actually mean. 

The Mortgage Bankers Association did issue a press release stating that the bill had:

several provisions that concern us deeply.   Senator Dodd’s bill does not provide a uniform national standard to protect consumers from predatory lending, a step we feel is necessary to ensure a smooth and efficient marketplace.  Further, we are troubled by the bill’s ‘duty of care’ and assignee liability requirements.

Stay tuned . . .

Tags: Consumer Protection, Mortgage Banking - General, Subprime Lending //